Why would anyone pay a $150 for something that costs $100? They wouldn’t if they had a choice, and that’s the problem with new nuclear reactors. Wall Street knows that new reactors cost too much and won’t fund them. But MidAmerican wants to build them, so the company is looking to the Iowa ratepayer to play the fool.

MidAmerican’s 636,000 customers in Iowa are captive customers; they can’t shop for the best power deal. Historically, when a utility wants to add new generating capacity it must build the plant and begin producing electricity before seeking to recover the costs from its customers. They can only recover costs that are reasonable and prudent. And the utility’s rate of return on its investment in the new plant should be commensurate with the risk the utility faces in undertaking the project.

MidAmerican, through HSB 124 and SSB 1144, wants to turn the whole process on its head. As a result, all three of these traditional consumer protections would be dramatically weakened.

The cost recovery scheme that MidAmerican is pushing shifts the risks away from its stockholders and onto its ratepayers. Electric bills rise long before a new power plant even produces one kilowatt. Ratepayers are on the hook even if the new plant costs soar, or the project is canceled or abandoned.

Last year, the Iowa legislature considered cost recovery legislation that had a provision empowering the Public Utility Board to require competitive bidding for new electricity resources. Under that approach, only if nuclear is cheaper can the project proceed, but MidAmerican knows nuclear is much more costly than efficiency, natural gas or wind, so this year’s bill drops that language. In other words, keep out competition – and the beneficial effect it has on prices.

And what exactly does MidAmerican want its customers to underwrite?

Earlier this year, MidAmerican President and CEO William Fehrman told the Iowa Senate Commerce Committee that his company is exploring a plan to build small modular reactors as opposed to one large central generating plant like Iowa’s existing Duane Arnold reactor. Small modular reactors are units that produce tens to hundreds of megawatts versus the 1,200 to 1,600 megawatts of new reactor designs.

Small modular reactors have become something of the darling of nuclear power advocates recently, in part because they claim that these small reactors will solve the major cost problems of large nuclear projects.

But smaller reactors don’t necessarily mean that the electricity produced will be cheaper. In fact, estimated costs for these new and untested designs are purely hypothetical, since none have ever been built commercially.

Meanwhile, utilities are abandoning or delaying proposed new large reactor projects throughout the U.S., because estimated costs for these reactors have soared and can’t compete against cheaper alternatives. In Florida, this has resulted in ratepayers paying almost half a billion dollars so far for new large reactors that that won’t be built until after 2020 – if ever.

Giving MidAmerican advanced cost recovery for totally untested designs is the absolute worst thing to do with ratepayer money. Ratepayers are not merely forced to be investment bankers; they are turned into venture capitalists with a high risk of failure and no projected return on their investment.

MidAmerican is selling its plan to the legislature and Iowans as a way to create jobs and deliver new supplies of energy. That’s just not true. Nuclear reactors produce relatively few jobs for the dollars invested. The costly electricity means consumers have less to spend on other goods and services and add to the cost of doing business. And the equipment vendors often are foreign corporations, sucking U.S. dollars overseas. The alternatives available in Iowa will create at least twice as many jobs as nuclear reactors.

Would Iowans benefit by paying higher electricity rates now for risky reactor projects that may or may not happen a decade or two in the future? The answer is a resounding “no.”
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Cooper is a senior fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School.
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Copyright (C) 2011 by the Iowa Forum. 3/11